What is business management cost? What does this cost include and how to manage it effectively? In this article, Viindoo will provide full information related to business management expenses. Let's read together now!
What is 'business management cost'?
Business management cost is an expense incurred during the operation of a business for operation, administrative management, etc. This cost is related to all operating activities of the business. Depending on the operation and management of each business, there will be different costs.
Business management cost is an indispensable element in the cost system of businesses. This is because a business with reasonable and optimal management costs will support building a sustainable and long-term business foundation. Therefore, this is also what most managers care about to best manage this cost.
Business management cost is important in business operations
Learn More: What is business management? 14 principles in business management
What does business management cost include?
According to corporate accounting, business management costs include the following items:
- Employee cost: This is the fee that businesses have to spend on employees in the company. These costs include salaries, allowances, health insurance, social insurance, etc of all employees in the departments and the board of directors.
- Material cost: This is the fee an enterprise spends on materials and supplies used in business management such as tools, stationery, etc.
- Fixed asset depreciation: Reflects the depreciation expenses of fixed assets used in the enterprise such as offices, machinery, equipment, means of transport, etc.
- Stationery cost: This is an expense for office supplies and equipment.
- Taxes, fees, and charges: This is the expense for license tax, land rental, and fees such as court costs, judgment enforcement fees, etc.
- Provision expense: This is an expense for receivables and payable provisions included in the business and production expenses of the enterprise.
- Outside purchasing services cost: This is the cost of outsourced services for business management such as purchasing and using technical documents, business management software, patents, periodic medical examination for employees, cost of the periodic medical examinations for employees, expenses for hiring domestic and foreign experts, etc.
- Other costs: Some examples of other business management costs such as transportation costs, conferences, travel expenses, etc.
As such, there are a lot of fees in business management costs. This requires administrators to really grasp and understand to build an effective management plan so that the business can operate at its best.
Types of business management cost
>>>> See More: What are hidden costs? Examples, ways to calculate and cut hidden costs
Structure and contents of account 642 - Administration expenses
Account structure 642 - business management expenses
In debt:
- The actual administrative expenses incurred in the period;
- Provision for bad debts, provision for payables
Have:
- Amounts recorded as a reduction in business administration expenses;
- Refund provision for doubtful debts, provision for payables
- Transferring administrative expenses to Account 911 - Determining operating results.
Account 642 has no ending balance.
Contents reflected in account 642 - Business administration expenses
Account 642 - Business administration expenses, there are 8 level 2 accounts:
- Account 6421: Management staff expenses: Reflects payables to employees of the unit, such as salary, remuneration, remuneration,...; deductions for social insurance, health insurance, trade union fees,...
- Account 6422: Cost of management materials: Record the cost of exported materials used for the management of the unit.
- Account 6423: Expenses for office supplies: Reflects expenses for tools and office supplies used for management.
- Account 6424: Depreciation expenses of fixed assets: Record depreciation expenses of fixed assets used for the unit.
- Account 6425: Taxes, fees and charges: Reflects expenses on taxes, fees and charges such as judgment enforcement fees, land rents and other fees and charges.
- Account 6426:Provision expenses: Reflects provisions for doubtful debts and payable provision expenses included in the management expenses of the entity.
- Account 6427: Expenses for services purchased from outside: reflecting expenses for services purchased from outside serving the management of the unit, such as: electricity, water, telephone...
- Account 6428: Other cash expenses: Record other expenses under the common management of the entity, in addition to the above-mentioned expenses.
Effective methods to calculate business management cost
Calculating a reasonable business management cost ratio
Each different type of business will have a different rate of business management cost. This depends on many factors, the most typical is the Product Life Cycle that the business provides.
In addition, businesses will also face periods when costs will fluctuate sharply, such as:
- Expenses increased strongly when expanding production and business scale, leading to an increase in employee wages and insurance premiums.
- The cost of changes in space rent, space expansion, or office renovation costs.
- Costs are reduced when reducing personnel, and changing development policies.
Therefore, to calculate reasonable costs, we need to rely on factors that are the characteristics of each field, and the size of the business and have risk management methods when costs fluctuate sharply.
In general, a business' cost ratio should be around 10% to 25% of an organization's total revenue. The ratio of cost in business management calculated on total revenue of less than 10% is considered optimal and reasonable.
A reasonable business cost ratio is from 10~25% of total revenue
How to optimally business management cost
Calculating business management costs is complex and requires many metrics, yet it plays a vital role in businesses. Effective business management cost determines the sustainable development of the company. To do this, companies need to reduce costs as much as possible and maximize revenue, in a number of ways, such as:
- Firstly, determine and set strict business management cost norms.
- Secondly, develop business management cost standards based on revenue data and development policies of previous years. These standards should be itemized and accompanied by quantitative indicators.
- Thirdly, have transparent and clear reports on revenues and expenditures on a weekly, monthly, quarterly, and yearly basis to help manage easily and limit the budget deficit.
- Fourthly, propagate a sense of responsibility for cost management to employees by holding conversations and exchanges so that all employees understand the importance of this issue.
Besides, we should not save too much because this will affect the operation of the organization and may lead to a decrease in revenue. Therefore, companies need to consider choosing a reasonable way of spending or saving.
Ways to help business management cost to the optimal level
Businesses can consider using high-tech software to increase efficiency in business management costs. One of the best software currently used by many businesses is Viindoo Accounting - the software that provides an overall picture of corporate finance.
The outstanding functions of Viindoo accounting software to help optimize business management cost activities are:
- Automate the entire accounting operations of the business;
- Control data continuously in real-time;
- Handle accounting operations in accordance with the accounting standards of different countries;
- Provide an overview of business finance;
- Forecast cash flow and plan finances;
- Prepare reports quickly and simply with continuously updated data;
- Integrate with other software and apps, to form a comprehensive enterprise management system.
Viindoo accounting software brings high efficiency to business cost management
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After reading this article, the business certainly has the answer to the question of what is business management cost. If businesses still have questions about this topic, please contact Viindoo for answers.
